This article focuses on potential causes of CEO overconfidence, a problem that to date has not been central to corporate governance. Instead, corporate governance has focused on solving conflicts of interest and on motivating managers to work hard; it has not emphasized the need to remedy the kind of good faith mismanagement that results when CEOs are overconfident, although well-intentioned and hard working. I theorize that CEO overconfidence is a product of corporate governance in two key ways. First, high executive compensation gives positive feedback to a CEO and signals that the chief executive is a success. Studies show that positive feedback and recent success build confidence. Indeed, the very process of winning the tournament to become the top executive probably makes a CEO more confident. Stressing the possible link between CEO pay and CEO overconfidence offers a new behavioral approach to executive compensation that emphasizes the psychological consequences of executive pay - namely, the risk of bad business decisions, particularly overinvestment, rooted in growing CEO confidence - as opposed to the incentive effects or fairness concerns associated with how and how much CEOs are paid. Second, a CEO-centric model of corporate governance is predominant in the U.S. as boards, subordinate officers, gatekeepers, judges, and shareholders largely defer to the chief executive, even in the Sarbanes-Oxley era. My theory is that CEOs become more confident as a result of the great deal of corporate control that is concentrated in their hands and the fact that their business judgment is largely deferred to, even as conflicts of interest, disloyalty, and fraud are more carefully monitored. I conclude by considering how corporate governance could incorporate techniques for managing CEO overconfidence, chief among them being efforts to ensure that the CEO and the board of directors consider the opposite (i.e., arguments against some course of action). One possibility is to appoint a chief naysayer whose job is to be a devil's advocate. This article also addresses what managerial overconfidence might mean for defensive tactics to hostile takeovers and for derivative lawsuits brought by shareholders, as well as for the law of fiduciary duty and the business judgment rule, exploring the possibility of extending the law of fiduciary duty to cover mismanagement that is rooted in managerial overconfidence. The general message of this article is that in the future, corporate governance should move beyond managerial motives to account more for human psychology and how managers actually behave and make business decisions, including when they are trying to do their best.
{"title":"Too Much Pay, Too Much Deference: Is CEO Overconfidence the Product of Corporate Governance?","authors":"Troy A. Paredes","doi":"10.2139/SSRN.587162","DOIUrl":"https://doi.org/10.2139/SSRN.587162","url":null,"abstract":"This article focuses on potential causes of CEO overconfidence, a problem that to date has not been central to corporate governance. Instead, corporate governance has focused on solving conflicts of interest and on motivating managers to work hard; it has not emphasized the need to remedy the kind of good faith mismanagement that results when CEOs are overconfident, although well-intentioned and hard working. I theorize that CEO overconfidence is a product of corporate governance in two key ways. First, high executive compensation gives positive feedback to a CEO and signals that the chief executive is a success. Studies show that positive feedback and recent success build confidence. Indeed, the very process of winning the tournament to become the top executive probably makes a CEO more confident. Stressing the possible link between CEO pay and CEO overconfidence offers a new behavioral approach to executive compensation that emphasizes the psychological consequences of executive pay - namely, the risk of bad business decisions, particularly overinvestment, rooted in growing CEO confidence - as opposed to the incentive effects or fairness concerns associated with how and how much CEOs are paid. Second, a CEO-centric model of corporate governance is predominant in the U.S. as boards, subordinate officers, gatekeepers, judges, and shareholders largely defer to the chief executive, even in the Sarbanes-Oxley era. My theory is that CEOs become more confident as a result of the great deal of corporate control that is concentrated in their hands and the fact that their business judgment is largely deferred to, even as conflicts of interest, disloyalty, and fraud are more carefully monitored. I conclude by considering how corporate governance could incorporate techniques for managing CEO overconfidence, chief among them being efforts to ensure that the CEO and the board of directors consider the opposite (i.e., arguments against some course of action). One possibility is to appoint a chief naysayer whose job is to be a devil's advocate. This article also addresses what managerial overconfidence might mean for defensive tactics to hostile takeovers and for derivative lawsuits brought by shareholders, as well as for the law of fiduciary duty and the business judgment rule, exploring the possibility of extending the law of fiduciary duty to cover mismanagement that is rooted in managerial overconfidence. The general message of this article is that in the future, corporate governance should move beyond managerial motives to account more for human psychology and how managers actually behave and make business decisions, including when they are trying to do their best.","PeriodicalId":106641,"journal":{"name":"Corporate Law: Corporate & Takeover Law","volume":"74 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2004-09-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"134372885","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This article provides an empirical examination of the determinants of firms' decisions where to incorporate. Consistent with our theoretical predictions, we find substantial evidence that firms are more likely to incorporate in states with corporate law rules that offer firms flexibility to devise their governance arrangement and significant but less robust evidence that firms are more likely to incorporate in states with higher quality judicial systems. Unlike prior studies, we find no evidence that firms are more or less likely to incorporate in states with anti-takeover statutes. The latter results are consistent with the hypothesis that anti-takeover statutes have no significant effect on a company's marginal ability to resist takeovers.
{"title":"The Demand for Corporate Law: Statutory Flexibility, Judicial Quality, or Takeover Protection?","authors":"Marcel Kahan","doi":"10.2139/ssrn.557869","DOIUrl":"https://doi.org/10.2139/ssrn.557869","url":null,"abstract":"This article provides an empirical examination of the determinants of firms' decisions where to incorporate. Consistent with our theoretical predictions, we find substantial evidence that firms are more likely to incorporate in states with corporate law rules that offer firms flexibility to devise their governance arrangement and significant but less robust evidence that firms are more likely to incorporate in states with higher quality judicial systems. Unlike prior studies, we find no evidence that firms are more or less likely to incorporate in states with anti-takeover statutes. The latter results are consistent with the hypothesis that anti-takeover statutes have no significant effect on a company's marginal ability to resist takeovers.","PeriodicalId":106641,"journal":{"name":"Corporate Law: Corporate & Takeover Law","volume":"10 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2004-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126850970","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2004-05-01DOI: 10.1111/J.1467-9396.2004.00447.X
B. Lyons
The paper highlights the main drivers for merger policy reform in the European Union, including the consequences of the recent appeal court reverses. It discusses some of the substantive and procedural issues that the reform package should address, and outlines the reforms in progress. The author concludes that much of the reform package will be beneficial, but some important opportunities have been missed in this inevitably patchwork process.
{"title":"Reform of European Merger Policy","authors":"B. Lyons","doi":"10.1111/J.1467-9396.2004.00447.X","DOIUrl":"https://doi.org/10.1111/J.1467-9396.2004.00447.X","url":null,"abstract":"The paper highlights the main drivers for merger policy reform in the European Union, including the consequences of the recent appeal court reverses. It discusses some of the substantive and procedural issues that the reform package should address, and outlines the reforms in progress. The author concludes that much of the reform package will be beneficial, but some important opportunities have been missed in this inevitably patchwork process.","PeriodicalId":106641,"journal":{"name":"Corporate Law: Corporate & Takeover Law","volume":"22 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2004-05-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125072735","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Promoting economic growth in developing countries is a daunting task. To be sure, economic prosperity depends on a host of economic, political, social, geographic, historical, and cultural factors. In recent years, a rich literature has developed focusing on one important factor - capital markets. A link has been shown between capital markets and economic growth, as one might suspect. The question, then, is what accounts for the development of capital markets, including thick equity markets in which ownership and control separate. The "law matters" thesis, spearheaded by the work of La Porta, Lopez-de-Silanes, Shleifer, and Vishny, offers one important explanation - namely, that the law plays a central role in the development of securities markets by protecting shareholders (and creditors) from insider abuses and expropriation, thereby encouraging investment. Assuming that law does matter, the question for developing countries is, "What law?" As is often the case, when considering corporate governance reforms in developing countries, attention shifts to the U.S. The U.S., after all, has the world's thickest securities markets. But is transplanting U.S. corporate law to developing countries likely to promote securities markets and economic growth there? Put differently, to what extent should the government displace private ordering with more substantive regulation of corporate governance in developing countries? In evaluating these questions in this article, I conclude that in most instances, developing countries should adopt a mandatory model of corporate governance, as compared to the enabling market-based approach that the U.S. (i.e., Delaware) has opted for. The article concludes by outlining what such a mandatory regime might look like.
{"title":"A Systems Approach to Corporate Governance Reform: Why Importing U.S. Corporate Law Isn't the Answer","authors":"Troy A. Paredes","doi":"10.2139/SSRN.519264","DOIUrl":"https://doi.org/10.2139/SSRN.519264","url":null,"abstract":"Promoting economic growth in developing countries is a daunting task. To be sure, economic prosperity depends on a host of economic, political, social, geographic, historical, and cultural factors. In recent years, a rich literature has developed focusing on one important factor - capital markets. A link has been shown between capital markets and economic growth, as one might suspect. The question, then, is what accounts for the development of capital markets, including thick equity markets in which ownership and control separate. The \"law matters\" thesis, spearheaded by the work of La Porta, Lopez-de-Silanes, Shleifer, and Vishny, offers one important explanation - namely, that the law plays a central role in the development of securities markets by protecting shareholders (and creditors) from insider abuses and expropriation, thereby encouraging investment. Assuming that law does matter, the question for developing countries is, \"What law?\" As is often the case, when considering corporate governance reforms in developing countries, attention shifts to the U.S. The U.S., after all, has the world's thickest securities markets. But is transplanting U.S. corporate law to developing countries likely to promote securities markets and economic growth there? Put differently, to what extent should the government displace private ordering with more substantive regulation of corporate governance in developing countries? In evaluating these questions in this article, I conclude that in most instances, developing countries should adopt a mandatory model of corporate governance, as compared to the enabling market-based approach that the U.S. (i.e., Delaware) has opted for. The article concludes by outlining what such a mandatory regime might look like.","PeriodicalId":106641,"journal":{"name":"Corporate Law: Corporate & Takeover Law","volume":"64 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2004-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114345454","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In this article, I briefly review the history of corporate law, and then describe current legal distinctions among organizational forms in order to argue that one of the characteristics that distinguishes corporations from partnership-type forms is the set of default rules that help organizers to lock in capital, without locking in the investors. I argue that such lock-in is probably attractive because it allows business organizers to precommit not to withdraw capital from the venture prematurely or capriciously. I then propose that corporate governance reform proposals be distinguished according to whether their purpose and effect is to strengthen the independence and information available to boards, to enhance shareholder "voice," or to make it easier for shareholders to "exit." If the purpose and effect of a corporate governance reform proposal is to make it easier for shareholders to "exit," by, say, requiring boards to submit takeover offers to a shareholder vote, or permitting shareholders to propose and mandate (by election) distributions, dissolution or asset sales, I argue in this paper that such a proposal is at odds with the "lock-in" function of corporate law. Since business organizers would find it difficult to achieve effective lock-in using other currently available organizational forms, eliminating or weakening the lock-in potential of the corporate law choice by statutorily requiring corporations to give shareholders such powers would take away an important organizational option that business organizers and investors currently have. This option has been eagerly sought out and used by business organizers in the U.S. for more than 150 years, and appears to be associated with substantial economic innovation and growth. Thus, it seems unwise on the face of it to change the law in ways that would eliminate this option. On the other hand, if the purpose and effect of a corporate governance reform proposal is to enhance the monitoring capabilities of corporate boards, or to facilitate shareholder "voice," such a proposal is not obviously at odds with the lock-in function of the corporate form, and may well reduce agency costs without unduly subverting the role that the corporate form serves in addressing the team production problem.
{"title":"Reforming Corporate Governance: What History Can Teach Us","authors":"Margaret M. Blair","doi":"10.2139/SSRN.485663","DOIUrl":"https://doi.org/10.2139/SSRN.485663","url":null,"abstract":"In this article, I briefly review the history of corporate law, and then describe current legal distinctions among organizational forms in order to argue that one of the characteristics that distinguishes corporations from partnership-type forms is the set of default rules that help organizers to lock in capital, without locking in the investors. I argue that such lock-in is probably attractive because it allows business organizers to precommit not to withdraw capital from the venture prematurely or capriciously. I then propose that corporate governance reform proposals be distinguished according to whether their purpose and effect is to strengthen the independence and information available to boards, to enhance shareholder \"voice,\" or to make it easier for shareholders to \"exit.\" If the purpose and effect of a corporate governance reform proposal is to make it easier for shareholders to \"exit,\" by, say, requiring boards to submit takeover offers to a shareholder vote, or permitting shareholders to propose and mandate (by election) distributions, dissolution or asset sales, I argue in this paper that such a proposal is at odds with the \"lock-in\" function of corporate law. Since business organizers would find it difficult to achieve effective lock-in using other currently available organizational forms, eliminating or weakening the lock-in potential of the corporate law choice by statutorily requiring corporations to give shareholders such powers would take away an important organizational option that business organizers and investors currently have. This option has been eagerly sought out and used by business organizers in the U.S. for more than 150 years, and appears to be associated with substantial economic innovation and growth. Thus, it seems unwise on the face of it to change the law in ways that would eliminate this option. On the other hand, if the purpose and effect of a corporate governance reform proposal is to enhance the monitoring capabilities of corporate boards, or to facilitate shareholder \"voice,\" such a proposal is not obviously at odds with the lock-in function of the corporate form, and may well reduce agency costs without unduly subverting the role that the corporate form serves in addressing the team production problem.","PeriodicalId":106641,"journal":{"name":"Corporate Law: Corporate & Takeover Law","volume":"57 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2003-12-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114869550","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper examines the holdings of the Delaware courts that a control premium must be added to the market value of shares in freeze-out transactions. It finds this result is not required by prior Delaware law. We argue that there is no control premium absent a current transaction in control, and that assumptions of control premia in freeze-outs are simply speculation. Awarding control premia provides a windfall gain for public shareholders, and is contrary to the treatment of public shareholders who receive publicly traded shares in other mergers.
{"title":"Appraising the Non-Existent: The Delaware Courts' Struggle with Control Premiums","authors":"W. Carney, Mark Heimendinger","doi":"10.2139/ssrn.399762","DOIUrl":"https://doi.org/10.2139/ssrn.399762","url":null,"abstract":"This paper examines the holdings of the Delaware courts that a control premium must be added to the market value of shares in freeze-out transactions. It finds this result is not required by prior Delaware law. We argue that there is no control premium absent a current transaction in control, and that assumptions of control premia in freeze-outs are simply speculation. Awarding control premia provides a windfall gain for public shareholders, and is contrary to the treatment of public shareholders who receive publicly traded shares in other mergers.","PeriodicalId":106641,"journal":{"name":"Corporate Law: Corporate & Takeover Law","volume":"s3-19 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2003-06-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130084325","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper develops and defends our earlier analysis of the powerful antitakeover force of staggered boards. We reply to five responses to our work, by Stephen Bainbridge, Mark Gordon, Patrick McGurn, Leo Strine, and Lynn Stout, which are to be published in a Stanford Law Review Symposium. We present new empirical evidence that extends our earlier findings, confirms our conclusions, and demonstrates that the alternative theories put forward by some commentators do not adequately explain the evidence. Among other things, we find that having a majority of independent directors does not address the concern that defensive tactics might be abused. We also find that effective staggered boards do not appear to have a significant beneficial effect on premia in negotiated transactions. Finally, we show that, unlike our approach, the approach that our critics advocate for Delaware takeover jurisprudence to follow is both inconsistent with its established principles and takes an extreme position in the overall debate on takeover defenses. Our analysis and new findings further strengthen the case for limiting the ability of incumbents armed with a staggered board to continue saying no after losing an election conducted over an acquisition offer.Our earlier study, Lucian Bebchuk, John Coates IV and Guhan Subramanian, "The Powerful Antitakeover Force of Staggered Boards: Theory, Evidence, and Policy," 54 Stanford Law Review 887-951 (2002), is available on the SSRN site at http://ssrn.com/abstract=304388.
本文发展并捍卫了我们之前对交错董事会强大反收购力量的分析。我们对斯蒂芬·班布里奇、马克·戈登、帕特里克·麦古恩、里奥·斯特恩和林恩·斯托特对我们工作的五个回应进行了回复，这些回应将发表在《斯坦福法律评论》研讨会上。我们提出了新的经验证据，扩展了我们早期的发现，证实了我们的结论，并证明了一些评论家提出的替代理论并不能充分解释这些证据。除此之外，我们发现，拥有多数独立董事并不能解决人们对防御策略可能被滥用的担忧。我们还发现，有效的交错董事会似乎对协商交易中的溢价没有显著的有益影响。最后，我们表明，与我们的方法不同，我们的批评者主张特拉华州收购法理学遵循的方法既不符合其既定原则，又在有关收购抗辩的整体辩论中采取极端立场。我们的分析和新发现进一步强化了限制配备交错董事会的在职者在收购要约选举失败后继续说不的能力。我们早期的研究，Lucian Bebchuk, John Coates IV和Guhan Subramanian，“交错董事会的强大反收购力量:理论，证据和政策”，54 Stanford Law Review 887-951(2002)，可在SSRN网站http://ssrn.com/abstract=304388上找到。
{"title":"The Powerful Antitakeover Force of Staggered Boards: Further Findings and a Reply to Symposium Participants","authors":"L. Bebchuk, John C. Coates, IV, Guhan Subramanian","doi":"10.2139/ssrn.360840","DOIUrl":"https://doi.org/10.2139/ssrn.360840","url":null,"abstract":"This paper develops and defends our earlier analysis of the powerful antitakeover force of staggered boards. We reply to five responses to our work, by Stephen Bainbridge, Mark Gordon, Patrick McGurn, Leo Strine, and Lynn Stout, which are to be published in a Stanford Law Review Symposium. We present new empirical evidence that extends our earlier findings, confirms our conclusions, and demonstrates that the alternative theories put forward by some commentators do not adequately explain the evidence. Among other things, we find that having a majority of independent directors does not address the concern that defensive tactics might be abused. We also find that effective staggered boards do not appear to have a significant beneficial effect on premia in negotiated transactions. Finally, we show that, unlike our approach, the approach that our critics advocate for Delaware takeover jurisprudence to follow is both inconsistent with its established principles and takes an extreme position in the overall debate on takeover defenses. Our analysis and new findings further strengthen the case for limiting the ability of incumbents armed with a staggered board to continue saying no after losing an election conducted over an acquisition offer.Our earlier study, Lucian Bebchuk, John Coates IV and Guhan Subramanian, \"The Powerful Antitakeover Force of Staggered Boards: Theory, Evidence, and Policy,\" 54 Stanford Law Review 887-951 (2002), is available on the SSRN site at http://ssrn.com/abstract=304388.","PeriodicalId":106641,"journal":{"name":"Corporate Law: Corporate & Takeover Law","volume":"150 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2002-12-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114448634","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The Internet transcends boundaries and time, reduces and shifts the cost of receiving and disseminating information. It poses unusual pressures of change on the common law. Internet jurisprudence demonstrates the vitality of the common law, yet highlighted its limitations. The Article describes how the common law addresses Internet issues and the relationship of judicial cases and congressional actions. The Article praises common law system of "muddling through," evolving piecemeal, addressing particular conflicts, not always uniformly nor predictably. This is lawmaking for the risk-averse, reducing the risk and cost of correcting big mistakes. The price: higher learning costs and fewer clear, bright-line and predictable laws. It is worth it.
{"title":"The Failure of the Delaware Business Trust Act as the New Corporate Law","authors":"Tamar Frankel","doi":"10.2139/SSRN.288543","DOIUrl":"https://doi.org/10.2139/SSRN.288543","url":null,"abstract":"The Internet transcends boundaries and time, reduces and shifts the cost of receiving and disseminating information. It poses unusual pressures of change on the common law. Internet jurisprudence demonstrates the vitality of the common law, yet highlighted its limitations. The Article describes how the common law addresses Internet issues and the relationship of judicial cases and congressional actions. The Article praises common law system of \"muddling through,\" evolving piecemeal, addressing particular conflicts, not always uniformly nor predictably. This is lawmaking for the risk-averse, reducing the risk and cost of correcting big mistakes. The price: higher learning costs and fewer clear, bright-line and predictable laws. It is worth it.","PeriodicalId":106641,"journal":{"name":"Corporate Law: Corporate & Takeover Law","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2001-10-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129533691","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The authors assess three established theories about the historical determinants of financial development. They also propose an augmented version of one of these theories. The law and finance view, stresses that different legal traditions emphasize, to differing degrees, the rights of individual investors relative to the state, which has important ramifications for financial development. The dynamic law and finance vie, augments the law and finance view, stressing that legal traditions also differ in their ability to adapt to changing conditions. The politics and finance view, rejects the central role of legal tradition, stressing instead that political factors shape financial development. The endowment view, argues that the mortality rates of European settlers, as they colonized various parts of the globe, influenced the institutions they initially created, which has had enduring effects on institutions today. When initial conditions produced an unfavorable environment for European settlers, colonialists tended to create institutions designed to extract resources expeditiously, not to foster long-run prosperity. The authors' empirical results are most consistent with theories that stress the role of legal tradition. The results provide qualified support for the endowment view. The data are least consistent with theories that focus on specific characteristics of the political structure, although politics can obviously affect the financial sector. In other words, legal origin - whether a country has a British, French, German, or Scandinavian legal heritage - helps explain the development of the country's financial institutions today, even after other factors are controlled for. Countries with a French legal tradition, tend to have weaker financial institutions, while those with common law, and German civil laws, tend to have stronger financial institutions.
{"title":"Law, Politics, and Finance","authors":"T. Beck, Asli Demirgüç-Kunt, R. Levine","doi":"10.1596/1813-9450-2585","DOIUrl":"https://doi.org/10.1596/1813-9450-2585","url":null,"abstract":"The authors assess three established theories about the historical determinants of financial development. They also propose an augmented version of one of these theories. The law and finance view, stresses that different legal traditions emphasize, to differing degrees, the rights of individual investors relative to the state, which has important ramifications for financial development. The dynamic law and finance vie, augments the law and finance view, stressing that legal traditions also differ in their ability to adapt to changing conditions. The politics and finance view, rejects the central role of legal tradition, stressing instead that political factors shape financial development. The endowment view, argues that the mortality rates of European settlers, as they colonized various parts of the globe, influenced the institutions they initially created, which has had enduring effects on institutions today. When initial conditions produced an unfavorable environment for European settlers, colonialists tended to create institutions designed to extract resources expeditiously, not to foster long-run prosperity. The authors' empirical results are most consistent with theories that stress the role of legal tradition. The results provide qualified support for the endowment view. The data are least consistent with theories that focus on specific characteristics of the political structure, although politics can obviously affect the financial sector. In other words, legal origin - whether a country has a British, French, German, or Scandinavian legal heritage - helps explain the development of the country's financial institutions today, even after other factors are controlled for. Countries with a French legal tradition, tend to have weaker financial institutions, while those with common law, and German civil laws, tend to have stronger financial institutions.","PeriodicalId":106641,"journal":{"name":"Corporate Law: Corporate & Takeover Law","volume":"17 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2001-04-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114316661","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper identifies problems with the ordered breakup of Microsoft that seem to have been completely overlooked by the government, the judge, and the commentators. The breakup order prohibits Bill Gates and other large Microsoft shareholders from owning shares in both of the companies that would result from the separation. Given this prohibition, we show, dividing the securities in the resultant companies among the shareholders is not as straightforward as the government has suggested. Any method of distributing the securities that would comply with this mandate would either (i) impose a significant financial penalty on Microsoft's large shareholders that is not contemplated by the order, or (ii) create a risk of a substantial transfer of value between Microsoft's shareholders. In addition to identifying the difficulties and costs involved in the two distribution methods that would comply with the cross-shareholding prohibition, we examine how the breakup order could be refined to reduce these difficulties and costs. The problems that we identify should be addressed if a breakup is ultimately to be pursued and should be taken into account in making the basic decision of whether to break up Microsoft at all.
{"title":"The Overlooked Corporate Finance Problems of a Microsoft Breakup","authors":"L. Bebchuk, David I. Walker","doi":"10.2139/ssrn.271806","DOIUrl":"https://doi.org/10.2139/ssrn.271806","url":null,"abstract":"This paper identifies problems with the ordered breakup of Microsoft that seem to have been completely overlooked by the government, the judge, and the commentators. The breakup order prohibits Bill Gates and other large Microsoft shareholders from owning shares in both of the companies that would result from the separation. Given this prohibition, we show, dividing the securities in the resultant companies among the shareholders is not as straightforward as the government has suggested. Any method of distributing the securities that would comply with this mandate would either (i) impose a significant financial penalty on Microsoft's large shareholders that is not contemplated by the order, or (ii) create a risk of a substantial transfer of value between Microsoft's shareholders. In addition to identifying the difficulties and costs involved in the two distribution methods that would comply with the cross-shareholding prohibition, we examine how the breakup order could be refined to reduce these difficulties and costs. The problems that we identify should be addressed if a breakup is ultimately to be pursued and should be taken into account in making the basic decision of whether to break up Microsoft at all.","PeriodicalId":106641,"journal":{"name":"Corporate Law: Corporate & Takeover Law","volume":"24 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2001-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"134283133","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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